When Business and Progressives Agree

It was news, not so much because of what was said, as who said it:  The Conference Board of Canada released a report on rising inequality in Canada today, noting that despite the fact that Canadians are better off than a generation ago, the richest 20% in society are taking an ever-growing share of the economic pie, while the middle and poor are getting less.  The  Conference Board says that’s a problem.

“High inequality raises two questions. First, what is the impact on the economic well-being of a country? The answer is that high inequality can diminish economic growth if it means that the country is not fully using the skills and capabilities of all its citizens or if it undermines social cohesion, leading to increased social tensions. Second, high inequality raises a moral question about fairness and social justice.”

We agree.  Wish I’d written it.

Actually, I’m glad I didn’t.

It’s one thing when organizations like the CCPA, journalists, and academics weigh in on the significance of rising inequality.  It’s quite another when the business establishment does.

In my days as a hired gun I did some contract work for the Conference Board on health economics.  The inside joke is that the Conference Board is a not-for-profit organization, not for-loss.  They don’t do research that isn’t well-funded and the money comes from probing questions that Canada’s decision-makers, both public and private, are grappling with in real time.  That means research on actionable issues, actions that business and governments can take.

In the case of the inequality report, the list of funders is a group of no-nonsense power-brokers, as noted on their website.

Acklands-Grainger Inc.
Agrium Inc.
Banque Nationale du Canada
Bell Aliant
Bell Canada
Gaz Métro
GE Canada
George Weston Limited
Groupe Canam inc.
Harvard Developments Inc.
Hydro-Québec
IBM Canada Ltd.
KPMG MSLP
Nitro Microsystems
Ontario Ministry of Economic Development and Trade
Power Corporation of Canada
St. Joseph Communications
Scotiabank
Slaight Communications Inc.
Symcor Inc.
TD Bank Financial Group
Telus Corporation
The Co-operators Group Limited
The Wawanesa Mutual Insurance Company
TransAlta Corporation
Xerox Canada Ltd.

It’s telling that rising inequality has been identified as a hot topic for this group.

We’re watching the slow-motion train-wreck of rising inequality in the U.S. and though our levels of inequality are less extreme   – does anyone do extreme better than the U.S.? –  the rate of growth of inequality has been more rapid in Canada over the past decade than at any time in our history, and the richest 1% scored almost a third of all the income growth of the decade preceding the recession.  That’s a bigger take than at any time on record, including the Roaring 20s.   The Conference Board duly noted these trends.

There is a growing awareness that when the fruits of prosperity are so poorly shared, trouble is not far off, for the economy and for society alike.  The Conference Board report  is a reflection of the growing concern shown by the business press in Canada, the U.S. and the U.K. in recent months, with stories ranging from national and international income trends to firm-level eye-poppers.

At Davos this year, the World Economic Forum named rising inequality as the “most serious challenge  for the world”.  Their survey of 580 global decision-makers led to the conclusion that “economic disparity and global governance failures both influence the evolution of many other global risks.”  Tackle growing inequality, and you tackle the root of much dysfunction in the world.

The serious thinkers in Canada’s business establishment are waking up to the significance of these facts.   Serious thinking about what to do about it cannot be far behind.

Love them or hate them, business leaders are not arm-chair theorists.  Their success and power comes from turning thinking into doing.

Progressives may soon have some company in the search for solutions to the problem of rising inequality.  Wouldn’t it be something if we agree on more than just the nature of the problem?

22 comments

  • Not likely. Business can occasionally notice the problem, but they can’t collectively take action in that direction, nor can rich people with influence really convince themselves inequality should be limited. Not for long, anyway. Like when for one brief moment in the depths of the financial crisis everyone was suddenly a pro-stimulus Keynesian again. Then they got over their panic and since then it’s been back to the shock doctrine.

  • After the G8 protests, I can understand Canada’s decision-makers grappling with this matter.

    What worries me is that the recommendations on how to deal with this will likely include more policing, some sops tossed out for the hoi polloi to fight over, and more wedges driven into the working class.

  • If the business leaders where really concerned about inequity they could simply accept less pay and pay their employees more. That doesn’t seem likely, though.

    Perhaps the purpose of this report was to measure how much successfully they’ve been.

  • The report rewards a careful reading. It would have been nice if the graphs had been numbered. It would also have been nice to use a common baseline (based on the longest data series, starting in 1976) for comparison.

    Some key points:

    1) The graph under “Is Canada becoming more unequal?” shows that the aftertax Gini has increased from 0.30 to 0.32 over the baseline period. This shows some increase in inequality.

    2) The graph under “If the rich are getting richer, are the poor getting poorer?” shows that income for the bottom quintile has increased from $12,500 to $14,500 (after-tax, 2009 $) over the baseline period. This shows that the bottom quintile’s position has improved.

    3) The graph under “What about the share of people in low income? Has this increased?” shows the percentage of people under the low-income cutoff has decreased from 13% to 9% over the baseline period. Given the propensity of people to use LICO as a synonym for poverty line (although Statscan says not to), you could say that this shows that fewer people are poor.

    4) The graph under “Do government taxes and transfers help to reduce inequality?” shows that the difference between before and after-tax Gini’s has increased from 8.5% to 12.5% over the baseline period. This shows that the tax and transfer system has become (by this measure) more progressive.

    I’m surprised none of points 2-4 made it into the “Key Messages” section at the top of the page.

  • Interesting indeed. On points 2 and 4, I’ve seen many articles referring to the situation of the bottom quintile and shifts in progressiveness of taxation, and all of them presented facts that seem quite different from those.
    It’s kind of impressive that they end up concluding increased inequality is a problem even with data showing less inequality increase than I believe to be the case in reality.

  • 1, 2 & 4 mean that the increase in inequality is being generated by the market despite slightly increased efforts by the state. So I will echo Darwin and just ask why these major employers don’t reform their salary scales and employment contracts?

  • The only sorts of programs I can imagine being implemented with the support of business are complementary to certain articulations of neoliberalism. I’m thinking of measures like labour market insertion, training programs, public health, assistance restructuring around privatization and basic incomes and such. Obviously they’ll fight tooth and nail against any sort of organized countervailing power and we’ve already seen the state sink to outright criminality at the prospect of popular protest. What surprises me is how terrified the organized left is in Canada to challenge any of this: As I’ve said, look at the Ontario NDP’s platform – it is essentially equivalent to McGuinty’s 2003 platform. When Layton saw what happened at G20 his proposal was to hire thousands of more cops. There seems almost like a vacuum between the centrist “left” and the on-the-ground activism which is mostly anarchistic. What interests me is if there is any purpose in trying to bridge that gap.

  • Anyone interested in a broader OECD context might enjoy the following paper:

    (http://www.oecd.org/dataoecd/32/20/47723414.pdf)

    especially page 6, showing how Canada compares with other OECD countries, and pages 8-12, which explore possible reasons for increasing Gini’s.

  • Donald said:

    “What interests me is if there is any purpose in trying to bridge that gap.”

    That depends on who would do the bridging and what the bridge would look like.

  • Armine Yalnizyan

    A few weeks back I did a presentation using OECD stats. Canada has moved from below average to above average after-tax inequality.
    Canada’s rise in inequality is second to only one nation in the OECD, Finland – which still remains well below the OECD average. Most of the increase is since the mid 1990s.
    Re comments about no hope from business quarters:
    Business practices are the root of the problem, to be sure, but that doesn’t mean there aren’t good business practices and that we should not encourage these. Similarly, it isn’t “The Solution” (there is no social nirvana), but I’m up for any improvements in access to education, income supports and public health measures. Aren’t you?
    If business agrees it is in their interest, all the better.
    Not clear how things are going to get better if the establishment gets rebuffed for saying the status quo is not sustainable, which is what this report – and Davos, and The Economist, and Joseph Stiglitz, etc. etc. – is saying.

  • Figure 1 in the OECD report cited above shows (by eye) bigger Gini changes for U.S, Israel, New Zealand, Germany, Finland, and Sweden than for Canada. Perhaps they were using a different baseline.

  • Armine Yalnizyan

    RCP you are correct but Figure 1 is comparing 2000s to the 1980s.

    Figure 3 looks at more recent developments, mid 1990s to mid 2000s, and only Finland saw a more rapid deterioration of income inequality in the OECD than Canada in this time period.

    Canada’s inequality grew at 1.5 times the pace of that in the U.S. in the most recent measures. This was during a period of exceptionally strong and sustained economic growth.

    The U.S. is close to the worse inequality in the OECD, ranking 27th out of 30 nations when measured by the Gini (eclipsed only by Mexico, Turkey and Portugal, in that order) and second to worst when measured by the P50/P10 ratio (Mexico is the worst).

    Data available here: http://www.oecd-ilibrary.org/sites/factbook-2010-en/11/02/01/index.html?contentType=&itemId=/content/chapter/factbook-2010-88-en&containerItemId=/content/serial/18147364&accessItemIds=&mimeType=text/html

    Canada was one of the few nations in the world that had kept a lid on inequality up to the mid 1990s.

    Between the mid 1990s and the mid 2000s, there were a number of nations bucking the trend to greater income inequality, in order: Turkey, Mexico, Ireland, UK, Ireland, Greece, Netherlands, Australia, and more modestly Japan, Luxembourg, Hungary and Spain.

    A number of these countries undoubtedly have seen a set-back since the global financial/economic crisis hit.

    For Canada, only a handful of people resist the notion that this is a non-issue. This is certainly not a left-right issue. Canada needs to do something about inequality going forward. Even business recognizes this. The question is simply what. And when.

  • Armine, it’s certainly the case that the OECD agrees with you that income inequality is an important issue, given the tenor of the report. Supposing for sake of argument that it is, what are your views on underlying causes? A number of potential causes are listed on page 8 of the report, and any policy response (assuming one is needed) will presumably be influenced by which causes are driving the Gini increase.

  • I think the causes of inequity would be the decrease in unionization due to globalization and increased job instability and executives taking advantage of obsequious shareholders to get more and more pay.

  • So, Darwin, would it be safe to say that your preferred policy prescriptions would to make it easier for workers to unionize, and implement some kind of “say on pay” provision for shareholders?

  • It will take more then making it easier for workers to unionize. Taking steps to encourage more full-time long-term employment would help more, like higher pay roll taxes on part time, temporary and contract workers.

    I don’t think “say on pay” will work to well either. Fixing corporate democracy could be harder then fixing our government democracy.

    There’s always nationalization.

  • Speaking of rising inequality, in the July 8 Globe & Mail a story on lagging wage growth included this sentence, which you’d think should have been front page news:

    “A recent report from the Certified General Accountants Association of Canada found more than half of indebted consumers are borrowing to pay for daily living expenses such as food, housing and transportation.”

    No, that can’t be good for the society in which we live.

    http://www.theglobeandmail.com/report-on-business/economy/jobs/wages-lagging-behind-rising-costs/article2091919/

  • Armine said:

    “Business practices are the root of the problem, to be sure, but that doesn’t mean there aren’t good business practices and that we should not encourage these. Similarly, it isn’t “The Solution” (there is no social nirvana), but I’m up for any improvements in access to education, income supports and public health measures. Aren’t you?”

    Of course, but look at what it took to get just the New Deal pushed through in the States: mass poverty, a much stronger socialist movement, feisty unions, the Russian Revolution, a president that wasn’t afraid to step on the toes of the ruling class, etc. AFAICT, it’s a carrot-and-stick approach; carrots are always possible, but they’re easy to ignore or make weak when there’s no stick to back them up with.

    I have a tough time imagining nowadays any kind of meaningful, long-lasting shift towards those improvements you listed (not that my poor imagination can encompass _all_ of history’s surprises).

  • Perhaps some elements of our elite would like to increase high end income taxes and improve social programs. We’ve been going the wrong way on those things for 30 years. But that doesn’t mean any such thing will happen. You mention the U.S. – multi-billionaire Warren Buffet, the 2nd wealthiest person in that country, has famously said there is a class war going on in the US and his class is winning. He has often called for higher income taxes on the wealthy. It’s made no perceptible difference that I can tell. Unless many of the rich organise to promote higher taxes on themselves it won’t happen.

    However what currently IS going on in a concerted way is a campaign to role back our public health system involving David Dodge, Don Drummond, and others which goes entirely in the other direction, and will impoverish many many people if successful. They never call for expansion of the public system into the only sector that really is spiraling out of control, the mostly private provision of pharmaceutical drugs.

    In addition, business groups repeatedly call for unnecessary balanced budgets at the federal level, causing reductions in funding for all kinds of worthwhile programs. Balanced budgets are not normally required at the federal level. Their only purpose is to serve as a justification to needlessly reduce government spending.

  • I want to echo what Keith Newman is saying about the deficit as a big scare tactic. What makes life liveable for the 50 percent of the population living below the median income of aprox. $25,000 are programmes delivered with direct public spending. Plans are afoot to do these in, starting with health care being opened to private for profit administration.
    I wish it were not the case, but inequality is a non-issue, because the three or four people in a position to do something about it federally are not interested in doing something.
    We need a straightforward pro-equality, anti-poverty pledge signed by millions of Canadians before the opposition will pick this up. If we do not let it go, the opposition will not let it go.

  • It’s a good point two people raised about health privatization. Ontario is setting up the fundamentals (fee for service billing for internal markets) of a system that could easily include private delivery, privatized management of health systems, public-private hospitals, etc.

  • I note that Jeff Simpson has written about inequality in the Globe today (July 20) citing the Conference Board. This confirms Armines point that who says it matters. He also concludes that nothing is going to be done about inequality.
    Making the connection between the adoption of market friendly macro policies, and the increase in inequality seems important in drawing attention to the causes of increased income disparity.
    Eventually it will be understood that since growing inequalities are created, they therefore can be reduced.

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